Museums

Robert Cenedella – a satirical American artist – has apparently decided not to replead his antitrust case against five major New York City museums. On December 19, 2018, Judge John G. Koeltl of the Southern District of New York dismissed Cenedella’s class action complaint, but gave him the opportunity to submit an amended complaint by January 15, 2019.[1] That deadline has since passed, with nothing from Cenedella but a defiant email statement attacking the museums’ attorneys for preventing him from reaching the discovery phase of the case, which, he suggested, would have allowed him to expose “how the NY Museum Cartel works.” This case demonstratesonceagain the difficulty of attempting to use antitrust law to challenge the opaque dynamics of the art world.[2]

Cenedella’s Allegations

Cenedella – the subject of the 2016 documentary film Art Bastard, which, Judge Koeltl noted, portrayed Cenedella as “an unabashed art world outsider”[3] – embraces his rebellious image. (Art Bastard’s tagline – “An art world rebel becomes an overnight sensation after 50 years” – is prominently displayed on Cenedella’s website.) Nonetheless, Cenedella has a history of complaining that museums have never included him in their collections.[4] On February 6, 2018, Cenedella sued five museums[5] (“Defendants”) for $100 million, alleging that they conspire to promote a small number of artists whose works are already part of their collections.[6]

In his Complaint, Cenedella described the relationship between the defendant museums and other arts institutions in New York as “an anticompetitive closed ecosystem,” which deprives him and other similarly-situated artists of opportunities to sell their artwork and artificially drives down the value of that artwork.[7] Cenedella alleged that Defendants’ decision to include an artist’s work in their permanent collections or special exhibitions is “career-changing” for that particular artist.[8] These select artists enjoy an inflation in their works’ value that is, according to Cenedella, artificially imposed.[9] Meanwhile, those artists whose work is not selected suffer an “artificial depression” in the market for their work.[10]

Cenedella further alleged that Defendants conspire with galleries, auction houses, art critics and private collectors in a cycle that makes certain artists’ artworks highly valuable and excludes others.[11] Cenedella argued that Defendants consider only artists represented by “influential galleries,”[12]which allegedly sell pieces to Defendants at a discounted price.[13] Citing an Art Newspaper article, Cenedella alleged that those galleries provide direct financial and other support to Defendants in the lead-up to one of their artist’s museum exhibitions.[14] Cenedella complained of the secrecy surrounding the defendants’ “acquisition policies” and “curatorial decisions.”[15] In sum, as characterized by Judge Koeltl, Cenedella’s argument boiled down to: “If not for the alleged conspiracy, the museums would purchase the artwork of the plaintiff and others, and consequently the plaintiff and others would see a rise in the value of their artwork.”[16]

The Museums’ Response

As the defendants bluntly put it in their motion to dismiss: “Plaintiff is disappointed that . . . Defendants . . . have not purchased or exhibited his artwork. But this grievance has nothing to do with the law, let alone the antitrust laws.”[17] They argued that Cenedella had not sufficiently demonstrated standing, both in the constitutional sense and in the more specific sense required of an antitrust plaintiff. Regarding the constitutional standing requirement of redressability, Defendants pointed to Cenedella’s failure to allege facts to support that, “but for the purported conspiracy, curators’ artistic standards would alter so that his work, rather than another contemporary artist’s work, would be acquired or displayed by one of the Museums.”[18] Regarding antitrust standing, Defendants argued that Cenedella neither has suffered an antitrust injury nor is an efficient enforcer of the antitrust laws.[19]

Defendants underscored the lack of evidence in Cenedella’s case by arguing that he failed to plausibly plead an antitrust violation. Regarding the conspiracy that Cenedella alleged, Defendants noted that he relied on “generalities and speculation,” not “any well-pleaded facts.”[20] His complaint therefore “fails at the threshold,” Defendants argued, because it “does not contain ‘enough factual matter (taken as true) to suggest that an agreement was made.’”[21]

Defendants emphasized the point that Cenedella cannot resolve the deficiencies in his complaint. In discussing Cenedella’s claim that the alleged conspiracy “improperly inflate[s]” select artists’ work while “improperly deflat[ing]” his own, they stated that he “has not pleaded facts . . . (nor could he).”[22] They advocated for dismissal with prejudice, stating that “the very premise of Plaintiff’s claims is irredeemably implausible” and “cannot be fixed by amendment.”[23]

Judge Koeltl’s Ruling

In his December 19, 2018 opinion, Judge Koeltl sided with Defendants, recognizing that Cenedella provided no more than mere conclusory statements regarding the alleged conspiracy and no evidence to support his argument that discovery would have helped his case. However, against Defendants’ urgings, Judge Koeltl dismissed the Amended Complaint without prejudice, finding that “it is not plain that any amendment would be futile.”[24]

Judge Koeltl first found that Cenedella lacked standing to bring the suit. As a threshold matter, Judge Koeltl ruled that Cenedella had no constitutional standing due to the lack of redressability: Even if the Court were to enjoin the alleged conspiracy, he reasoned, there is no guarantee – rather, only Cenedella’s “subjective boast” – that Defendants would then purchase Cenedella’s work.[25] Judge Koeltl also found that Cenedella failed to establish antitrust standing. Although Judge Koeltl rejected Defendants’ arguments that Cenedella’s injury was not the type of injury that “antitrust laws were intended to prevent,” he found that Cenedella is not an “efficient enforcer” of antitrust laws, reasoning that art purchasers, such as “other museums outside of the alleged conspiracy who buy art at the alleged artificially inflated prices,” would be better suited to bring these claims.[26]

Judge Koeltl further found that Cenedella’s conspiracy claim was insufficient, because Cenedella failed to indicate either direct or circumstantial evidence of a conspiratorial agreement.[27] Judge Koeltl stated that there is “an obvious alternative explanation” to the conduct that Cenedella described – i.e., simply that certain artists are “worthy of collecting and showing” whereas others are not.[28]

Implications for Future Antitrust Cases

Grievances about supposed conspiracies in the art world are not new – and neither is the failure of those claims to gain traction in the courtroom. Successful antitrust claims in this arena are rare:[29] for the most part, defendants prevail early on.[30] Tort law, rather than antitrust, has greater potential to apply to such claims. For instance, common law fraud seems sufficient to deal with shenanigans such as dealers’ attempts to manipulate the market for their artists’ works – e.g., by bidding at auction on their own inventory or silently substituting one work for another to favor a preferred collector.

Although Judge Koeltl gave Cenedella another chance at his Complaint, the stark lack of facts in Cenedella’s case represents more than just an inadequately drafted complaint. It highlights the difficulty in applying antitrust law to matters that involve personal preference, with subjective taste about art being a prime example. This truism has not stopped plaintiffs from bringing antitrust claims involving subjective determinations made by players in the art world. When the successful parties in these art law antitrust suits consistently shell out considerable funds to defend against baseless claims, it is not clear that these cases have any clear winners. One is left to wonder whether Cenedella’s objective in bringing his claims was in fact to put an end to an illegal art world conspiracy, or whether his ultimate objective was simply to gin up an abundance of publicity. If the latter, Cenedella may have prevailed after all.

Time will tell whether this case will garner enough media attention to bring Cenedella what he has been after all along: higher prices for his art. After Banksy’s stunt at a Sotheby’s auction where his “Girl With Balloon” suddenly shredded itself after it was sold, manyspeculated that Banksy would see an increase in prices for his art. It is unclear whether the same can be said for Cenedella. Banksy’s stunt was the first of its kind, referred to as “a part of art history.”[31] Cenedella’s use of the legal system is certainly not novel, as shown by the numerous claims before him that have been brought against the art world. It is the substance of Cenedella’s arguments, therefore, that will determine the public’s interest in him. Maybe in this respect, the more outlandish his claims, the better for him.

[2]As previously discussed on this blog, art authenticators have felt the brunt of these claims, paying sometimes prohibitively expensive litigation costs in order to defend against claims that ultimately fail.

[12]Id. ¶ 22. Cenedella quoted a Los Angeles Times article that states, “[A]lmost one-third of solo museum exhibitions in the United States are of artists represented by one of five prominent commercial galleries: Gagosian Gallery, Marian Goodman, Pace, David Zwirner and Hauser & Wirth.” Cenedella cited statistics which show that, between 2007 and 2013, artists represented by these five galleries made up 90% of all major solo exhibitions at the Guggenheim Museum; 45% of single-artists shows at the Museum of Modern Art; and 45% of major shows at the New Museum. Am. Compl. ¶ 30.

The short answer is yes.1 Nonprofit organizations with tax-exempt status should not lose that status if, in furtherance of their exempt purpose, they speak out about issues affecting their constituents and the communities they serve. While nonprofit organizations are absolutely barred from political campaigning, if the actions fall under their stated mission they can (i) criticize or praise sitting public officials, (ii) take a position on political issues, and (iii) take a position on specific government regulations. However, taking such a position may count towards the organization’s limit on lobbying.

No Campaigning

Nonprofit organizations are prohibited from engaging in candidate-related activities and cannot support or oppose candidates in relation to their political campaigns for public office. This prohibition is absolute, and could result in the organization’s loss of its 501(c)(3) exemption. As the IRS explains here, certain activities or expenditures, such as voter education activities and activities intended to encourage participation in the electoral process, would not be considered political campaign activity if conducted in a non-partisan manner.

Political Issues are Fair Game, if Actions are Within the Organization’s Mission

Nonprofit organizations can advocate for or against a position or action the government might take on any issue. They can be represented at marches and protests concerning government positions or actions, and can speak directly or through an artist, program or exhibition. Recently, many arts organizations have voiced their reactions and those of their constituents and communities to proposed or actual federal government actions. The Brooklyn Museum urged people to process, mourn and activate the day after the Election Day in 2016. The Whitney Museum hosted a free event on Inauguration Day during which artists, writers and activists affirmed their values to resist anticipated governmental action and reimagine the current political climate. The Queens Museum invited members of the public to make signs, posters, banners and buttons expressing their views in preparation for the January 2017 protest marches. The Museum of Modern Art re-hung part of its permanent collection with artwork created by artists from Muslim nations. The Davis Museum at Wellesley College removed or obscured artworks by immigrant artists or donated by immigrant collectors. (Certain of these activities, such as re-hanging artwork within galleries, might be viewed as more closely aligned with the organization’s stated exempt purpose than others.)

Keep Lobbying in Check

According to the IRS, “[a] 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.” These limitations apply to (i) “direct lobbying” (communication with officials or employees of a legislative body involved in formulating legislation to influence specific legislation), and (ii) “grassroots lobbying” (communication taking a view on specific legislation that attempts to influence such legislation through a call to action). A nonprofit organization’s lobbying efforts become problematic if they constitute a “substantial part” of its overall activities (as determined by the facts and circumstances of each case), and excessive lobbying can cause an organization to lose its tax-exempt status. However, nonprofit organizations (other than churches or private foundations) can elect to have their lobbying activity measured by what the National Council of Nonprofits calls the “friendlier” “expenditure test” under IRS section 501(h) rather than the case-by-case “substantial part” test. Under the “expenditure test,” a nonprofit organization’s lobbying activity will not jeopardize its tax-exempt status, provided its lobbying expenditures do not exceed specified amounts (based on the size of the organization’s exempt-purpose expenditures).

In sum, arts organizations have spoken out in furtherance of their exempt purpose, and can continue to speak out on political issues affecting their constituents and communities without fear of losing their tax-exempt status as long as they (1) do not participate in political campaigns and (2) comply with applicable federal limits on lobbying activities.sup

__________________1. This post provides general information only, not legal advice. The facts of any individual case will determine whether an organization is in jeopardy of losing its tax-exempt status, and it should consult an attorney.

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Hughes Hubbard’s Art Law Group negotiates, litigates and advises clients on the full range of legal issues that arise concerning works of art, the art market and the art world.

About Hughes Hubbard

Hughes Hubbard & Reed LLP is an international law firm ranked for 12 years on The American Lawyer’s A-List of what the magazine calls “the top firms among the nation’s legal elite.” The firm was founded in 1888 by the renowned jurist and statesman Charles Evans Hughes.